U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-17151
PAINE WEBBER/CMJ PROPERTIES, LP
(Exact name of registrant as specified in its charter)
Delaware 04-2780288
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
BALANCE SHEETS
September 30, 1996 and December 31, 1995 (Unaudited)
(In thousands of dollars)
ASSETS
September 30 December 31
------------ -----------
Investments in local limited
partnerships, at equity $ 18 $ 161
Cash and cash equivalents 383 325
------- -------
$ 401 $ 486
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 82 $ -
Accrued expenses 22 22
Partners' capital 297 464
------- --------
$ 401 $ 486
======= ========
STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 1996 and 1995 (Unaudited)
(In thousands of dollars, except per Unit information)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Other income from local
limited partnerships $ 101 $ 80 $ 101 $ 180
Interest income 3 7 9 16
------- ------- ------ -------
104 87 110 196
Expenses:
Management fees 50 50 149 149
General and administrative 23 21 62 63
------- ------- ------ -------
73 71 211 212
------- ------- ------ -------
Operating income (loss) 31 16 (101) (16)
Partnership's share of local
limited partnerships'
income (losses) (52) 81 66 81
------- ------- ------ -------
Net income (loss) $ (21) $ 97 $ (35)$ 65
======= ======== ======== ========
Net income (loss) per Limited
Partnership Unit $(2.45) $11.09 $(3.97) $ 7.49
====== ====== ====== ======
Cash distributions per Limited
Partnership Unit $ 5.00 $ 5.00 $15.00 $15.00
====== ======= ====== ======
The above net income (loss) and cash distributions per Limited Partnership Unit
are based upon the 8,745 Limited Partnership Units outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended September 30, 1996 and 1995 (Unaudited)
(In thousands of dollars)
General Limited
Partners Partners
-------- --------
Balance at December 31, 1994 $ (71) $ 582
Cash distributions (1) (131)
Net income 1 64
----- ------
Balance at September 30, 1995 $ (71) $ 515
===== ======
Balance at December 31, 1995 $ (72) $ 536
Cash distributions (1) (131)
Net loss - (35)
----- ------
Balance at September 30, 1996 $ (73) $ 370
===== ======
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $ (35) $ 65
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Partnership's share of local limited
partnerships' income (66) (81)
Other income from local limited partnerships (101) (180)
Changes in assets and liabilities:
Accounts payable - affiliates 82 149
Accrued expenses - (4)
-------- -------
Total adjustments (85) (116)
-------- -------
Net cash used in operating activities (120) (51)
-------- -------
Cash flows from financing activities:
Distributions from local limited partnerships 310 394
Distributions to partners (132) (132)
--------- --------
Net cash provided by financing activities 178 262
--------- --------
Net increase in cash and cash equivalents 58 211
Cash and cash equivalents, beginning of period 325 324
--------- ---------
Cash and cash equivalents, end of period $ 383 $ 535
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended December 31, 1995.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Related Party Transactions
The Adviser earned basic management fees of $149,000 during each of the
nine-month periods ended September 30, 1996 and 1995. Accounts payable
affiliates at September 30, 1996 consists of $82,000 of management fees
payable to the Adviser.
Included in general and administrative expenses for each of the nine months
ended September 30, 1996 and 1995 is $24,000, representing reimbursements to
an affiliate of the Managing General Partner for providing certain financial,
accounting and investor communication services to the Partnership.
Also included in general and administrative expenses for the nine months
ended September 30, 1995 is $1,000, representing fees earned by Mitchell
Hutchins Institutional Investors, Inc. for managing the Partnership's cash
assets.
3. Local Limited Partnerships
The Partnership has investments in six local limited partnerships which own
operating investment properties, as discussed further in the Annual Report.
These local limited partnerships are accounted for on the equity method.
Under the equity method of accounting for limited partnership interests, the
investments are carried at cost adjusted for the Partnership's share of the
local limited partnership's earnings, losses and distributions. Losses in
excess of the investment in individual local limited partnerships are not
recognized currently, but rather, are offset against future earnings from
such entities. Distributions received from investments in limited
partnerships with carrying values of zero are recorded as other income in the
Partnership's statement of operations.
<PAGE>
Summarized operating results of these local limited partnerships follow:
Condensed Combined Summary of Operations
For the three and nine months ended September 30, 1996 and 1995
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Rental revenues, including
government subsidies $ 2,485 $ 2,447 $7,431 $7,394
Interest income 25 26 71 77
------- ------- ------ ------
2,510 2,473 7,502 7,471
Property operating expenses 1,503 1,292 3,986 3,797
Interest expense 711 721 2,137 2,167
Depreciation and amortization 323 306 970 918
Real estate taxes 164 131 473 498
------- ------- ------ ------
2,701 2,450 7,566 7,380
------- ------- ------ ------
Net income (loss) $ (191) $ 23 $ (64) $ 91
======= ======= ====== =======
Net income (loss):
Partnership's share of
combined operations $ (161) $ 17 $ (44) $ 72
Local partners' share of
combined operations (30) 6 (20) 19
------- ------- ------ -------
$ (191) $ 23 $ (64) $ 91
======= ======= ======= =======
Reconciliation of Partnership's share of operations:
For the three and nine months ended September 30, 1996 and 1995
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Partnership's share of
operations, as shown above $ (161) $ 17 $ (44) $ 72
Losses in excess of basis not
recognized by Partnership 128 64 215 88
Income offset with prior year
unrecognized losses (19) - (105) (79)
------ ------ ------ ------
Partnership's share of local
limited partnerships'
income (losses) $ (52) $ 81 $ 66 $ 81
====== ======= ====== ======
4. Contingencies
The Partnership is involved in certain legal actions. At the present time,
the Managing General Partner is unable to estimate the impact, if any, that
the resolution of these matters may have on the Partnership's financial
statements, taken as a whole.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership received distributions totalling $435,000 in 1995 ($41,000
of which was received in the fourth quarter) from its six limited partnership
investments. The distributions received in 1995 represented the available cash
flow for distribution as of December 31, 1994, as determined by the general
partners of the local limited partnerships in accordance with the partnership,
financing and regulatory agreements. Distributions of 1995 cash flow were made
during the quarter ended September 30, 1996 and totalled $310,000 from four of
the six local limited partnerships. No distributions were received in the
current quarter from the Villages at Montpelier and Marvin Gardens limited
partnerships and none are expected in the fourth quarter. At the Villages at
Montpelier limited partnership, which distributed $63,000 to the Partnership in
1995, the local general partner decided to withhold excess cash flow to pay for
the costs of cleaning up a leak in the property's underground oil tanks. By the
end of the current quarter, the underground tanks had been drained, cleaned and
filled under the supervision of the Maryland Department of Environmental
Protection which was satisfied with the remediation efforts. At the Marvin
Gardens limited partnership, which distributed $27,000 to the Partnership in
1995, the local general partner decided to reserve additional funds for capital
improvements in the current year. The distributions received from its limited
partnership investments in 1995 and 1994 had been sufficient to cover the
Partnership's management fees and administrative expenses and enabled the
Partnership to implement a program of regular quarterly distributions to the
Limited Partners at an annual rate of 2% of original invested capital, or
$177,000 per year to the Limited and General Partners. Such distributions had
commenced effective with a payment made in August 1994 for the quarter ended
June 30, 1994. Due to the unpredictability of the annual distributions of
available cash at the local limited partnership level resulting from rising
property operating expenses, increases in capital expenditures and rent levels
which are government controlled, the Partnership will only make annual
distributions of available net cash flow in the future. Therefore, the quarterly
distribution payments will be suspended subsequent to the payment made on
November 15, 1996 for the quarter ended September 30, 1996.The next distribution
payment is expected to be made a year from now on November 14, 1997. The
Partnership is reviewing each property in detail with the property manager to
assess its potential operating performance over the next two years. However,
given the current environment of rising property operating and capital
improvement costs, and strict restrictions on available cash flow from the
properties, it is likely that if a distribution is paid in 1997, it would only
be made at an annual rate of 1%.
Occupancy levels at all six properties in which the Partnership has invested
remained in the mid-to-high 90% range for the quarter ended September 30, 1996.
As discussed further in the Annual Report, with the exception of The Villages at
Montpelier Apartments, which has only 20% of its units restricted for low-income
housing, cash flow from the properties in which the Partnership has invested is
restricted by the Department of Housing and Urban Development ("HUD") and other
applicable state housing agencies, which set rental rates for low-income units
and require significant cash reserves to be established for future capital
improvements. In addition, a substantial amount of the revenues generated by
these properties comes from rental subsidy payments made by federal or state
housing agencies. These features, which are characteristic of all subsidized
low-income housing properties, significantly limit the pool of potential buyers
for these real estate assets. Furthermore, the current uncertainty regarding
potential future reductions in the level of federal government assistance for
these programs may further restrict the properties' marketability. Accordingly,
management does not expect the general partners of the local limited
partnerships, which receive management fee revenues from the properties, to
attempt to sell any of the properties in the near term. As a limited partner of
the local limited partnerships, the Partnership does not control property
disposition decisions. The partnership agreements state that the limited partner
may cause the sale of the assets of the local limited partnerships subsequent to
September 30, 1995, but not earlier than one year after it has given written
notice to the operating general partner of its intent to cause such sale, and
only if, during such one year period, the operating general partner does not
cause the sale of such assets. If the operating general partner has not caused
the assets of the partnership to be sold within such one year period the limited
partner may cause such sale, but only after it has offered to sell such assets
to the operating general partner, and either the operating general partner does
not accept such offer within 90 days of receiving it, or the operating general
partner does not complete the sale in accordance with such offer after accepting
the terms.
All six of the Partnership's operating investment properties receive rental
subsidy payments from the federal government under Section 8 of the National
Housing Act. With the exception of The Villages at Montpelier Apartments, the
subsidy agreements covering the operating investment properties do not expire
for another 5 to 7 years. The subsidy agreement covering the 20% portion of The
Villages at Montpelier Apartments is scheduled to expire in July 1997. Based on
current market conditions, in the event that the agreement is not renewed,
management believes that the units currently designated as low-income units
could be re-leased at market rates which would keep the total revenues of the
local limited partnership relatively unchanged from the current subsidized
level. In addition, if the market for conventional multi-family apartment
properties remains strong over the next 12 months, the expiration of the rental
subsidy agreement at The Villages at Montpelier Apartments could enhance the
property's marketability for a potential sale to a third-party. However, there
are no assurances that the market conditions will remain strong over this
period. If conditions were to deteriorate, The Villages at Montpelier Apartments
could experience declines in occupancy and revenues upon the expiration of the
subsidy agreement. It is uncertain at this time, what operating decisions and
strategic actions the general partner of the local limited partnership will make
concerning the expiration of this subsidy agreement. For the five properties
which contain 100% low-income housing units, the government subsidy payments
range from 75% to 82% of the total revenues of the related local limited
partnerships. At the present time, certain legislative initiatives and
governmental budget negotiations could result in a reduction in funds available
for the various HUD-administered housing programs and new limitations on
increases in subsidized rent levels. Such changes could adversely impact the net
operating income generated by the local limited partnerships. In light of the
uncertainty regarding the near term prospects for government assisted,
low-income housing and the restrictions on the Partnership's ability to cause a
sale of the operating properties, management does not have any plans, at the
present time, to initiate the sale process under the terms of the agreements
described above. A decision as to whether to take such actions to initiate the
sale process with respect to any or all of the operating investment properties
in the future will be based upon a number of factors including the availability
of a pool of qualified buyers, an evaluation of the future of the relevant
subsidy programs, the availability of financing and an assessment of local
market conditions.
At September 30, 1996, the Partnership had available cash and cash equivalents
of $383,000, which it intends to use for its working capital requirements and
for distributions to partners. The source of future liquidity and distributions
to the partners is expected to be from cash generated from the operations of the
Partnership's real estate investments and from the proceeds received from the
sale or refinancing of the properties owned by the local limited partnerships.
Such sources of liquidity are expected to be sufficient to meet the
Partnership's needs on both a short-term and long-term basis.
Results of Operations
Three Months Ended September 30, 1996
For the three-month period ended September 30, 1996, the Partnership reported a
net loss of $21,000 as compared to net income of $97,000 for the same period in
the prior year. The unfavorable change in net operating results for the third
quarter of 1996 resulted from an unfavorable change of $133,000 in the
Partnership's recorded share of local limited partnership operations, which was
partially offset by a $21,000 increase in other income from local limited
partnerships. Distributions received from investments in limited partnerships
with carrying values of zero are recorded as other income in the Partnership's
statements of operations. The increase in other income for the current
three-month period results from changes in the timing of the receipt of
distributions from the local limited partnerships.
As discussed further in the Notes to the Financial Statements, under the equity
method of accounting for limited partnership interests, losses in excess of the
investment in individual local limited partnerships are not recognized
currently, but rather, are offset against future earnings from such entities.
Five of the six local limited partnership investments had carrying values of
zero at both September 30, 1996 and 1995. As a result, the Partnership's share
of local limited partnerships' operations represents the allocable operations of
only the Ramblewood partnership in both the current and prior three-month
periods. The unfavorable change in Ramblewood's operations for the current
three-month period resulted mainly from an increase in property operating
expenses mainly as a result of exterior painting work which was performed in the
current period. Overall combined net operating results for the six local limited
partnerships decreased over the same three-month period in the prior year
primarily due to increases in property operating expenses, incentive management
fees and real estate taxes. Property operating expenses increased as a result of
exterior painting performed at both the Ramblewood Apartments and The Villages
at Montpelier Apartments. In addition, the repair of underground oil tanks was
performed at The Villages at Montpelier Apartments in the current period, as
discussed further above.
Nine Months Ended September 30, 1996
For the nine-month period ended September 30, 1996, the Partnership reported a
net loss of $35,000, as compared to net income of $65,000 for the same period in
the prior year. The unfavorable change in net operating results for the nine
months ended September 30, 1996 was the result of a decrease in other income
from local limited partnerships of $79,000 and a decrease in the Partnership's
recorded share of local limited partnerships' income of $15,000. Other income
from local limited partnerships decreased due to the changes in the amounts and
timing of the distributions from the local limited partnerships discussed
further above. As discussed further above, the Partnership's share of local
limited partnerships' income in the current period represents the allocable
income of the Ramblewood partnership; the only one of the Partnership's
investments which still has a positive equity method carrying value. For the
nine months ended September 30, 1995, the Ramblewood partnership generated net
income, of which the Partnership's allocable share amounted to $81,000. For the
nine months ended September 30, 1996, the Ramblewood partnership generated net
income of which the Partnership's allocable share amounted to $66,000. The
unfavorable change in the net operating results of the Ramblewood partnership
for the current nine-month period resulted mainly from an increase in property
operating expenses due to sidewalk repairs and exterior painting expenses.
Overall combined net operating results for the six local limited partnerships
decreased over the same nine-month period in the prior year primarily due to an
increase in snow removal costs at certain of the operating properties, the
exterior painting at the Ramblewood Apartments and The Villages at Montpelier
Apartments and the repair of the underground oil tanks performed at The Villages
at Montpelier Apartments, as discussed further above.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in prior quarterly and annual reports, in November 1994 a
series of purported class actions (the "new York Limited Partnership Actions")
were filed in the United State District Court for the Southern District of New
York concerning PaineWebber Incorporated's sale and sponsorship of 70 limited
partnership investments, including those offered by the Partnership. The
lawsuits were brought against PaineWebber Incorporated and PaineWebber Group
Inc. (together "PaineWebber"), among others, by allegedly dissatisfied
partnership investors. In March 1995, after the actions were consolidated under
the title In re PaineWebber Limited Partnership Litigation, the plaintiffs
amended their complaint to assert claims against a variety of other defendants,
including PW Shelter Fund, Inc. and Properties Associates, L.P. ("PA"), which
are the General Partners of the Partnership and affiliates of PaineWebber. On
May 30, 1995, the court certified class action treatment of the claims asserted
in the litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partners, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the direction of the court. A final hearing on the fairness of the
proposed settlement is scheduled to continue in November 1996.
With regard to the Abbate action described in the Annual Report on Form
10-K for the year ended March 31, 1996, in September 1996 the court dismissed
many of the plaintiffs' claims as barred by the applicable statutes of
limitations. The eventual outcome of this litigation and the potential impact,
if any, on the Partnership's unitholders remains undeterminable at the present
time.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
discussed above. However, PaineWebber has agreed not to seek indemnificaiton for
any amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. At the present time, the General Partners
cannot estimate the impact, if any, of the potential indemnification claims on
the Partnership's financial statements, taken as a whole. Accordingly, no
provision for any liability which could result from the eventual outcome of
these matters has been made in the accompanying financial statements of the
Partnership.
Item 2 through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER/CMJ PROPERTIES, LP
By: PW SHELTER FUND, INC.
Managing General Partner
By:/s/Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: November 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended September
30, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 383
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 383
<PP&E> 18
<DEPRECIATION> 0
<TOTAL-ASSETS> 401
<CURRENT-LIABILITIES> 104
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 297
<TOTAL-LIABILITY-AND-EQUITY> 401
<SALES> 0
<TOTAL-REVENUES> 176
<CGS> 0
<TOTAL-COSTS> 211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (35)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35)
<EPS-PRIMARY> (3.97)
<EPS-DILUTED> (3.97)
</TABLE>
